Cross River PPP Success; Economy and COVID-19 on V-Shape?; Mastercard’s Response to Visa

Greetings,

This week, we open with a few highlights on the successes of digital-first finance, and growing calls for regulation to keep up; zoom out to discuss macroeconomic news of the week; and end with the latest product and financing news from our industry.

Let’s get to it.

Driving PPP Success with Digital-First Finance

This week, the New York Times profiled digital bank, Cross River, led by CEO, Gilles Gade.

Cross River is a leading PPP lender, just trailing Bank of America, JPMorgan, and Wells Fargo. Cross River has issued over 100,000 loans and $5Bn in PPP loan volume — nearly twice the assets the bank had on its books less than three months ago.

This is a win not just for Cross River, but FinTech more generally. The article describes how Cross River partnered with other FinTechs such as Scratch, Intuit, and Kabbage to make it come together in a seamless digital experience.

(It’s not too late. If you or a small business you know is looking for a PPP loan, click here to apply at Cross River.)

Economy (and COVID-19 Cases) Continues to Grow

On the macro front, jobless claims this week continued to tick down, coming in at 1.48MM (vs. a revised 1.54MM the prior week), with continuing claims similarly falling slightly to 19.5MM (down from 20.3MM last week).

There is also early data that the recovery appears to be taking a V-shape pattern. Unfortunately, new COVID-19 cases also appear to be taking a V-shape.

25 states have COVID-19 case counts growing at least 25% over the last two weeks. These states include major sectors of the US economy such as California, Florida and Texas.

Nearly two dozen states are seeing an increase in cases which is causing a scaling back of reopening plans.

Just as jobless claims seem to be settling in after the early-crisis spike, so too are borrower forbearance requests.

Data released by the Mortgage Bankers Association shows a leveling off of forbearance requests by mortgage borrowers in the last few weeks, with the total share of mortgage loans in forbearance declining for the first time since March.

Source: Daily Shot, Mortgage Bankers Association, PeerIQ

The % of loan balances that are in hardship programs continue to decline as extensions, deferral, and loan mod programs roll off.

Source: PeerIQ Analytics Platform

Source: PeerIQ Analytics Platform

Will the Leveling Off of Loan Forbearance Continue?

Increasingly, the industry is asking the same question: how long can forbearance continue to level off while so many Americans are out of work?

We think this turns on a simple question of timing: will the job markets recover before unemployment assistance runs out?

As we pointed out back in March, the combination of stimulus programs on offer added up to significant benefits for individuals - enough that consumer loan losses were likely to be fewer than feared at the time.

Clearly, that outcome has come to pass and we’ve recently gotten confirmation of the reason why as well. A working paper from the University of Chicago finds that nearly 70% of people who have lost their jobs since the COVID-19 crisis began are now receiving more in benefits that they lost in earnings.

That is a significant boost to their financial wherewithal. While many are (rationally) taking advantage of the forbearance programs on offer, they are continuing to stay current to avoid moving into default.

Upstart Launches Auto Lending Product; British Banking

Turning to industry news, this week online lending platform Upstart, led by CEO, Dave Girouard, announced the launch of an AI-driven auto-lending program for its bank partners.

Upstart’s tool provides a “bank branded, mobile-friendly application” that ties DMV record lookup, bank partners’ credit policies, automated fraud checks, and expected vehicle values together to enable borrowers to complete their loan application in as little as 20 minutes.

As we’ve mentioned previously, auto purchases have been a bright spot in retail spending data in the last few weeks. It’s a nice win for Upstart to expand its product set and capture more of the customer’s digital lending experience.

Left unsaid in the press release is the funding mechanic for auto loans. Auto loans have very low APRs and are generally dominated by banks and credit unions (and securitization). We’ll want to dig-in to this further.

Zopa Receives Banking License

In international FinTech news, we wanted to give a shout-out to Jaidev Janardana, whose FinTech business Zopa was recently awarded a full UK banking license.

Zopa’s challenger bank will sit alongside its existing peer-to-peer lending business. Tee license gives Zopa Group the ability to offer savings accounts and a credit card alongside its current financing options for customers.

The move is another example of monoline FinTech lenders (see Upgrade’s financing news for instance) of evolving their funding models and product sets to look like challenger banks.

Mastercard Muscles in on Open Banking; nCino Sets IPO Plan

This week, Mastercard announced that it would acquire the 500-person Finicity. The move looks like a direct response to Visa’s acquisition of Plaid.

The Salt Lake-based firm, led by CEO, Steve Smith, is a payments infrastructure provider that helps power Quicken Loans’ Rocket Mortgage, among other offerings.

The acquisition, valued at up to $985MM if performance targets are met, gives Mastercard access to the firm’s real-time financial data aggregation tools and it is expected to accelerate Mastercard’s open banking strategy.

And last, but certainly not least, financial software firm nCino announced this week that it’s moving towards an IPO, seeking to raise $100MM.

Led by CEO, Pierre Naudé, the Wilmington, NC firm provides Salesforce-based tools to more than 1,100 corporate customers, helping them improve loan and deposit processing among other services.

Spun out in 2012 from Live Oak Bank, the 900-person firm has raised $213MM from notable investors Insight Partners, Salesforce Ventures, and T. Rowe Price, among others.

In the News:

• The Tiny Bank That Got Pandemic Aid to 100,000 Small Businesses (NY Times, 6/23/2020) Cross River has produced more loans under the Paycheck Protection Program than all but three of the nation’s biggest lenders.
• How the Virus Won (NY Times, 6/25/2020) How the pandemic spun out of control.
• The Fed Said it Could Supply the Economy with $2.3 Trillion. It Hasn’t Come Close so Far (CNBC, 6/24/2020) In March the Fed unveiled lending programs that they believed could provide $2.3Tn to the economy. So far, that has totaled just $143Bn.
• Real-Time Population Survey (RPS) (Dallas Fed, 6/19/2020) According to the Federal Reserve Bank of Dallas, the employment rate for working-age adults (18–64) was 59.6% in the week of June 13th.
• Americans Increase Deposits as Banks Cut Back on Lending (Axios, 6/22/2020) The Fed’s latest report on assets and liabilities of commercial banks shows that banks have stepped up commercial and industrial loans, but consumer loans have fallen precipitously.
• Societal Upheaval Strengthens Case to Expand CRA to Nonbanks: Ludwig (American Banker, 6/23/2020) Former Comptroller of the Currency, Gene Ludwig, believes that making online lenders, credit unions, and other nonbanks comply with the CRA would help address racial and economic injustices.
• FDIC to Lift Postcrisis Curb on Banks (WSJ, 6/25/2020) FDIC Chair, Jelena McWilliams, plans to complete a final rule that would reduce the amount of cash that banks must set aside to cover any potential losses on swap trades.
• Here's Why Small Businesses are Ditching their Banks and Turning to FinTechs like PayPal and Plaid to Navigate the Complicated Process of PPP Loan Forgiveness (Business Insider, 6/24/2020) Executives at EY, Plaid, PayPal, and BlueVine explain why forgiveness of PPP loans is challenging and how they want to help.
• Upstart's AI Lending Platform Expands to Auto Loans (PR Newswire, 6/24/2020) Upstart’s new offering helps bank partners modernize their auto lending programs through AI.
• Zopa Granted Full UK Bank License as it Gears up to Launch Savings Account and Credit Card (TechCrunch, 6/23/2020) Zopa, led by CEO, Jaidev Janardana, was awarded a full UK bank license, as it prepares to launch a fixed-term savings account, followed by a credit card.
• OnDeck Capital in High-Stakes Talks with Creditors (American Banker, 6/24/2020) With credit quality suffering due to the COVID-19 pandemic, OnDeck faces onerous loan repayments if it can't renegotiate a corporate debt facility.
• A Hybrid Fintech Startup Foretells Banking’s Future (The Financial Brand, 6/21/2020) Rho Business’ “modern commercial banking platform” could be seen as a threat or a way forward for banks and credit unions.
• Uber Money Head Quits As Company Moves Away From Financial Operations (PYMNTS, June 25, 2020) Head of Uber Money, Peter Hazlehurst, resigned following Uber’s shift away from the finance-related ideas he championed.
• Mastercard To Buy Financial Data Provider Finicity For $825M (PYMNTS, 6/23/2020) Mastercard to acquire Salt Lake City-based FinTech startup, Finicity for $825MM.
• NCino, Cloud-Based Financial Services Firm, Aims To Raise $100 Million In IPO (NCino, 6/22/2020) NCino, led by CEO, Pierre Naudé, is seeking to raise $100 million in an IPO.
• UK-Based Checkout.com Eyes US Listing After Being Valued at $5.5Bn (Financial Times, 6/22/2020) Checkout.com aims for U.S. listing debut after its latest funding round.

Lighter Fare:

• Experiment Confirms 50-Year-Old Theory Describing How an Alien Civilization Could Exploit a Black Hole (Phys.org, 6/23/2020) Researchers have found a way to experimentally demonstrate how a black hole can generate energy.